Note 6. Pledged Assets and Debt

As a result of the strict foreclosure, all obligations represented by the 2019 Notes and 2020 Notes were extinguished, and holders of the 2019 Notes and 2020 Notes received a pro rata share of $276,940 of the newly‑issued 10.750% PIK Notes due 2023.

PIK notes payable at December 31, 2019 and December 31, 2018 consisted of the following:



	December 31, 2019						December 31, 2018
	Principal		Discount		Fair Value		Principal		Discount		Fair Value
Senior PIK notes, 10.750% interest payable in-kind, due December 2023	$	307,860	$	233,617	$	74,243	$	276,940	$	216,144	$	60,796
		307,860		233,617		74,243		276,940		216,144		60,796
Less current maturities		—		—		—		—		—		—
Long-term portion	$	307,860	$	233,617	$	74,243	$	276,940	$	216,144	$	60,796

As a result of the Restructuring and application of business combination accounting, all of the Company’s debt obligations were initially recognized at fair value at December 13, 2018. The Company has elected to apply the fair value option to the PIK Notes, and therefore are reported at fair value. The Company elected the fair value option for the PIK Notes because the notes were initially recognized at a significant discount, all subsequent interest will be paid-in kind rather than in cash, and management expects it to be likely that the notes will be converted to equity upon maturity. For these reasons, management believes reporting the PIK Notes at fair value provides better information to the users of the Company’s financial statements. The fair value option was not elected for the Company’s other debt obligations because they do not have the same characteristics as the PIK Notes.

The fair value of the PIK Notes was determined using an approach that considered both a Black Scholes option price methodology and the intrinsic value of the notes on an ‘‘as-if-converted’’ basis. This approach was selected because the PIK Notes are expected to be converted to equity upon redemption and the face value of the PIK Notes is greater than the enterprise value of the Company. Significant assumptions used in the Black Scholes option price methodology include the following:


	December 31,		December 31,
	2019		2018
Risk-free interest rate		1.65%		2.51%
Dividend yield		0.00%		0.00%
Expected volatility		39.30%		38.90%
Expected term (years)		3.95		4.95

The risk-free interest rate is based on the yield on 5-year Treasury bonds, and the expected volatility was determined using the guideline public company method. The expected term is based on when management expects the PIK Notes to be redeemed for equity. The intrinsic value at each measurement date is based on the estimated enterprise value adjusted for net debt, and assumes a redemption of all outstanding PIK Notes at that time. An average of the allocated value from the Black Scholes option price methodology and the intrinsic value is used to estimate fair value at each measurement date.

The change in the fair value of the PIK Notes during the Successor year ended December 31, 2019, and the Successor period ended December 31, 2018 of $17,473 and $6,635, respectively, have been recognized in other comprehensive income as the entire change in fair value is attributable to the instrument-specific credit risk of the PIK Notes. We measure the fair value of the PIK Notes on a quarterly basis using a similar methodology, unless there is a quoted market price that can be used instead.

Interest on the PIK Notes accrues at the rate of 10.750% per annum and is payable by increasing the principal amount of the PIK Notes. Interest is payable semiannually in arrears for the prior six-month period on June 15 and December 15 to the Holders of PIK Notes of record on the immediately preceding June 1 and December 1. Interest on the PIK Notes is accrued and recorded as accrued interest until June 15 and December 15, at which time the accrual is released and the additional principal amount is recorded. The outstanding principal amount of the PIK Notes was increased by $15,703 on December 15, 2019, and by $15,217 on June 15, 2019, in lieu of the payment of accrued interest. Accrued interest for the PIK Notes at December 31, 2019, and December 31, 2018, was $1,379 and $1,571, respectively, and is included as a current liability on the Consolidated Balance Sheet.

On December 12, 2018, in connection with the closing of the Restructuring, the Revolving Credit Agreement (which is an intercompany obligation and eliminated upon consolidation) was simultaneously amended and restated. The Revolving Credit Agreement initially provided for borrowings of up to $42,000 and had a maturity date of June 15, 2023. All borrowings under the Revolving Credit Agreement are secured by substantially all of the assets of CCF OpCo, CCF Intermediate Holdings LLC, a Delaware limited liability company, the sole member of CCF OpCo and our wholly owned subsidiary and certain of CCF OpCo’s subsidiaries. The Revolving Credit Agreement is guaranteed by certain subsidiaries of CCF OpCo. We discuss this intercompany obligation because the intercompany obligation (and the collateral securing this intercompany obligation) has been given as security for the obligations under the Secured Notes. Borrowings under the Revolving Credit Agreement bear interest at a rate of 9.00% per annum. Those interest payments are used to fund the interest payments on the Secured Notes.

Secured Notes payable at December 31, 2019, and December 31, 2018, consisted of the following:



	December 31, 2019						December 31, 2018
			Deferred						Deferred
			Issuance		Net				Issuance		Net
	Principal		Costs		Principal		Principal		Costs		Principal
$42,000 Secured note payable, 9.00%, collateralized by all Guarantor Company assets, due June 2023	$	40,000	$	—	$	40,000	$	42,000	$	—	$	42,000
		40,000		—		40,000		42,000		—		42,000
Less current maturities		—		—		—		—		—		—
Long-term portion	$	40,000	$	—	$	40,000	$	42,000	$	—	$	42,000

On September 6, 2018, CCF Issuer entered into an indenture with Community Choice Financial Holdings, LLC, a wholly‑owned subsidiary of the Company, as guarantor, governing the issuance of $42,000 of 9.00% senior secured notes due September 6, 2020 (the “Secured Notes”). The Secured Notes were issued as part of a private placement exempt from the registration requirements of the Securities Act of 1933, as amended, to certain significant holders of the 2019 Notes and 2020 Notes. The proceeds from the Secured Notes were used to fund $42,000 in loans to the Company pursuant to the Revolving Credit Agreement described above.

On December 12, 2018, in connection with the Restructuring, CCF Issuer issued an aggregate principal amount of $42,000 in Secured Notes to previous holders of secured obligations. The Secured Notes bear interest at 9.00% per annum and mature on June 15, 2023. Pursuant to the SPV Indenture, CCF Issuer and Community Choice Holdings each granted a pledge over all of their respective assets. CCF Issuer was also required to pledge its interests in the Revolving Credit Agreement and the security granted as collateral for the obligations under the Revolving Credit Agreement. The SPV Indenture also contains restrictive covenants that limit our subsidiaries’ ability to incur additional indebtedness, pay dividends on or make other distributions or repurchase our capital stock or the capital stock of our subsidiaries, make certain investments, enter into certain types of transactions with affiliates, create liens or merge with or into other companies.

On January 15, 2019, the Company repaid $2,000 of the outstanding borrowings under the Credit Agreement, and repurchased $2,000 of the Secured Notes and 7,143 Class B Common Units corresponding to the repurchased Secured Notes, with the payment allocated to the Secured Notes. The outstanding balances of the Credit Agreement and Secured Notes are $40,000 at December 31, 2019.

Subsidiary notes payable at December 31, 2019 and December 31, 2018 consisted of the following:



	December 31, 2019						December 31, 2018
			Deferred						Deferred
			Issuance		Net				Issuance		Net
	Principal		Costs		Principal		Principal		Costs		Principal
$73,000 Note, secured, 16.75%, collateralized by acquired loans, due April 2021	$	73,000	$	367	$	72,633	$	70,000	$	16	$	69,984
$1,425 Term note, secured, 4.75%, collateralized by financed asset, due November 2024		777		—		777		822		—		822
$1,165 Term note, secured, 4.50%, collateralized by financed asset, due May 2021		954		6		948		1,016		—		1,016
		74,731		373		74,358		71,838		16		71,822
Less current maturities		128		1		127		884		—		884
Long-term portion	$	74,603	$	372	$	74,231	$	70,954	$	16	$	70,938

In connection with the Restructuring on December 12, 2018, CCFI Funding II LLC, a non‑guarantor subsidiary of CCF OpCo, entered into an amendment to the Amended and Restated Loan and Security Agreement, dated as of April 25, 2017 (as amended, modified or supplemented from time to time, the “Ivy Credit Agreement”) pursuant to which, among other things, our borrowings under the Ivy Credit Agreement were increased from $63,500 to $70,000.

The Ivy Credit Agreement was amended on March 18, 2019 to extend the maturity date to April 30, 2020 and establish an interest rate of 16.75% on the entire credit facility. The Agreement was further amended on September 9, 2019 to increase the credit limit from $70,000 to $73,000. The Ivy Credit Agreement was amended on February 7, 2020 to extend the maturity date to April 30, 2021.

On July 19, 2014, a guarantor subsidiary of the Company entered in to a $1,425 joint note with a non‑related entity for the acquisition of a share of an airplane. We recorded our $1,069 share of the joint note, but both parties are joint and severally liable. The joint note had an outstanding balance of $1,036 at December 31, 2019 and our share of the note was $777. The term note was amended on November 22, 2019 to extend the maturity date to November 22, 2024, and increased the interest rate to 4.75%.

On May 24, 2016, a guarantor subsidiary of the Company entered into a $1,165 term note for the acquisition of a share of an airplane.

The five year maturity for all debt arrangements as of December 31, 2019 consisted of the following:


			Twelve months ending December 31,
	Total		2020		2021		2022		2023		2024		Thereafter
Senior PIK notes
Principal	$	307,860	$	—	$	—	$	—	$	307,860	$	—	$	—
Total senior PIK notes		307,860		—		—		—		307,860		—		—
Borrowings under secured notes
Principal		40,000		—		—		—		40,000		—		—
Total borrowings under secured notes		40,000		—		—		—		40,000		—		—
Subsidiary note payable
Principal		74,731		128		73,958		72		72		501		—
Total subsidiary note payable		74,731		128		73,958		72		72		501		—
Total	$	422,591	$	128	$	73,958	$	72	$	347,932	$	501	$	—